Question

Discuss the process of capital investment and the importance of capital investment decisions for health care managers today. In your Discussion, use three key terms from the unit.

Answer 1

First Let We Know What Is Capital Invesment, Capital Investment is the act of placing capital into a project or business with the intention of making a profit on the initial placing of capital. The term Capital Investment has two usage in business. Firstly, Capital Investment refers to money used by a business to purchase fixed assets, such as land, machinery, building etc. Secondary, Capital Investment refers to money invested in a business with the understanding that the money will be used to purchase fixed assets, rather than used to cover the business day to day operating expenses.

Process Of Capital Investment Consists five Steps :

1. Identify and evaluate potential opportunities : The process begins by exploring available opportunities. For any given initiative, a company will probably have multiple options to consider. For example, if a company is seeking to expand its warehousing facilities, it might choose between adding on to its current building or purchasing a larger space in a new location. As such, each option must be evaluated to see what makes the most financial and logistical sense. Once the most feasible opportunity is identified, a company should determine the right time to pursue it, keeping in mind factors such as business need and upfront costs.

2. Estimate operating and implementation costs : The next step involves estimating how much it will cost to bring the project to fruition. This process may require both internal and external research. If a company is looking to upgrade its computer equipment, for instance, it might ask its IT department how much it would cost to buy new memory for its existing machines while simultaneously pricing out the cost of new computers from an outside source.

3. Estimate cash flow or benefit : Now we determine how much cash flow the project in question is expected to generate. One way to arrive at this figure is to review data on similar projects that have proved successful in the past. If the project won't directly generate cash flow, such as the upgrading of computer equipment for more efficient operations, the company must do its best to assign an estimated cost savings or benefit to see if the initiative makes sense financially.

4. Assess risk
This step involves estimating the risk associated with the project, including the amount of money the company stands to lose if the project fails or can't produce its previously anticipated results. Once a degree of risk is determined, the company can evaluate it against its estimated cash flow or benefit to see if it makes sense to pursue implementation.

5. Implement
If a company chooses to move forward with a project, it will need an implementation plan. The plan should include a means of paying for the project at hand, a method for tracking costs, and a process for recording cash flows or benefits the project generates. The implementation plan should also include a timeline with key project milestones, including an end date if applicable.

Importance of capital investment decisions for health care managers today.

1. Increasing competition and artificially-imposed price controls in health care are forcing caregivers to rethink how they manage their delivery systems. Health care delivery systems must be able to provide extremely high-quality care at reasonable costs. Any variation in the systems and the processes needed to deliver the health care “product” serves to increase the costs and reduce the quality of that health care. The variation does so, partly, by increasing the time needed to deliver the service. One of the primary goals of health care must be, then, to identify and reduce the root causes of variation in its processes and systems.

2. Make or Buy Decision This need is also true in all decision making processes in which variation, or lack of a consistent framework by which to make decisions, can lead to not only inefficiencies but also costly errors that reduce the hospital’s competiveness and its ability to deliver cost-effective care. One of the decisions impacting a health care system’s cost is the make/buy decision: when to outsource a process and when to maintain the process in-house. If the decision is to “make,” then the next decision is a capital investment one.

3. Investment In of late, technology Highly Upgarded Technology is transforming the way we live. When it comes to our health, we use the latest technology to get the maximum benefit out of it in order to lead a healthy life. Of late, technology is our part and parcel of our life, we use wearable gadgets to monitor our stress level, heart rate, blood pressure, etc. Thus, we depend on technology and innovation to lead a stress-free life.Three modern technologies such as mobility, cloud and big data have transformed the information & technology in healthcare. Many companies and startups have been focusing to take latest technology any cost so that they can make better service in a low or affordable budget.